No money for the market

Thomas H. Kee Jr. is the president and CEO of
Stock Traders Daily (dotcom), where he offers strategies and newsletters to
both institutional and individual investors, and he manages money privately for
both institutional and individual investors through Equity Logic LLC. A
specialist in technical analysis, Kee is also the founder of one of the leading,
longer-term fundamental economic and stock market indicators in history, The
Investment Rate. This proprietary tool, which is available to clients, too,
predicts major economic cycles well in advance, and has been accurate since
1900. Using his broader observations of the economy to define disciplines, Kee
has been able to accurately predict market cycles in advance using his
multi-tiered technical indicators, and that combination has kept him ahead of
the curve since starting Stock Traders Daily in January 2000.

With my finger on the pulse of retail investors through real-time trading reports I sell, columns that I write for Marketwatch and other media venues, and the flow of traffic to my various financial web portals, I have evidence that the interest in the stock market has waned considerably in recent days. The fall off has been noticeable and eye opening.

Not only is this happening in places where I have direct contact, but I am hearing this from other financial professionals. Smaller investors are simply stepping away, web-based traffic to financial sites is drying up and so is the volume at the New York Stock Exchange.

Some might argue that they have all paid attention to the Trader's Almanac and sold in May, but there is something else very important to understand. The small guy has very little interest in the stock market when he compares stocks to the great performance of what are presented to be safer bond funds. Those of us who know also understand that bond funds at these price points are a money trap, but that is left for another discussion.

The point here is that the retail investor’s lack of interest is not the only catalyst for the reduced demand in our stock market today. An underlying macroeconomic factor exists which proves that fewer and fewer new investment dollars are available to be invested into the U.S. economy every year on average for the next decade.

The proof is found in The Investment Rate, a proprietary study that measures the rate of change in the amount of new money available to be invested into the U.S. economy over time, and it shows us that the peak of new investment growth was 2007. The concept is simple, based on what all economies are based on, people, and how they spend and invest their money.

My proof suggests that the way they spend money offers chaos-like boundaries around economic cycles, but it is the way people as a whole invest money that governs long-term economic cycles within mature economies. Even the day-to-day changes in economic policy cannot influence this pattern more than to shift investment dollars from one asset class to another, so my goal when creating the Investment Rate was to measure the amount of new money available to be invested into the U.S. economy every year over time. The stock market, for example, cannot grow without new money.

The conclusion, based on a study of societal norms within the United States as that relates directly to the way people invest money over the course of their normal lives, proved every major economic cycle in advance, the Great Depression, stagflation, and the up-periods in between, and it pinpointed the peak in 2007 in advance and tells us exactly how long this third major down period in U.S. history lasts.

It is not just the small investors’ lack of interest that is drying up, but the net new investment dollars available to be invested into the United States is drying up faster right now that it has at any other time since this third major down period began in 2007. This will not stop. It will present high-risk environments, and eventually, my analysis tells me, we will see single-digit multiples in the S&P 500 as a result. Given the 14x PE multiple in the S&P 500 ETF
SPY, -0.19%
that is roughly a 30% decline before I will consider the market to be in parity with where The Investment Rate suggests it should be, but it can be measurably worse than that too. In each of the prior two down periods, it was worse.

Without a doubt, the mandate is risk control, and proactive money management.

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